Why Family Video stores still dot metro Detroit

Suburban Chicago-based company has 19 stores in metro Detroit, more than 700 across the country

Targets locations in smaller towns in more rural areas where Internet speeds may be slower

Forbes estimated company brought in $400 million in 2016

Kirk Pinho/Crain’s Detroit Business

Video rentals on display at a Family Video location in Warren.

You can still rent DVDs and video games from Family Video, and its stores still dot metro Detroit, years after its competition evaporated.

The key has little to do with stocking the right mix of movies to win back Netflix watchers. It does have to do with a real estate strategy its competitors couldn't match that has resulted in sizable local holdings.

The suburban Chicago-based company, which has 19 stores in metro Detroit and more than 700 across the country, leases very little of its space, unlike its former competitors like Blockbuster, which ceased operations in 2013.

The result, said the company's head of real estate, is an ability to control its own destiny.

As those competitors were facing challenges that included rent increases and an inability to shrink their leased footprints as the streaming television and movie revolution led by Netflix and others began to take hold, Family Video was sitting pretty in property that it owned. That gave it needed flexibility.

Family Video's portfolio

Stores (statewide): 109

Owned properties (statewide): 91

Square footage (statewide): 511,270

Estimated value of real estate (statewide): $91 million

Stores (metro Detroit): 19

Owned properties (metro Detroit): 22

Square footage (metro Detroit): 138,057

Estimated value of real estate (metro Detroit): $22 million

Source: Legacy Commercial Property

It could shrink the Family Video footprint and install other related tenants, such as Marco's Pizza, of which parent company Highland Ventures Ltd. has 140 to 150 locations, or Stay Fit 24, of which it has 15 locations. It also has Highland Pure Water & Ice and a cell phone operation called Total Wireless.

"All these businesses go into our owned real estate," said Sam Stilp, president of real estate for Glenview, Ill.-based Legacy Commercial Property, the real estate subsidiary of Highland Ventures, which is owned by Keith Hoogland. "When the video stores were built 20 or 30 years ago, they were 6,000 or 7,000 square feet for video. Now we can be in 3,000 or 4,000 feet, and we've tried 2,500 feet."

Family Video has moved some of its locations, like in South Lyon, and leased out to health systems like McLaren Healthcare or salons, like in Canton Township.

In addition, it has little debt, unlike the obligations that sunk its rivals. When it builds a new store, it siphons all profits to the construction loan debt service so it is paid off in five years or less, Stilp said.

"Very low debt and we control our destiny because we don't have the landlord to answer to."

For the most part. In the spaces it does lease, it enters into largely flexible agreements — say, a two-year lease with eight one-year options to renew, making them less attractive to landlords.

"We say we don't know if this store is going to be open in 18, 24 or 36 months," Stilp said. "The first ones to close are typically the rentals as landlords get less interested."

He also said the company likes locations in smaller towns in more rural areas where internet speeds may be slower and where "there is a definitely a school of people who like to go into the store than get it online."

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Tjader Gerdom: Family Video a smart company.

"They are a smart company and have been smart for a very long time" on its real estate decisions, Gerdom said.

Part of that is preparing for what will ultimately be the end of video stores, he said.

"When video comes to an end, you can lease the space out to another tenant or two and you still have a good retail center on a good corner. Your revenue stream changes from the sale and rental of video games to the rental income from national and regional tenants," Gerdom said.